International Journal of Lean Six SigmaLean Six Sigma and digitize procurementBernardo Nicoletti

Article information:To cite this document:Bernardo Nicoletti, (2013),"Lean Six Sigma and digitize procurement", International Journal of Lean SixSigma, Vol. 4 Iss 2 pp. 184 - 203Permanent link to this document:http://dx.doi.org/10.1108/20401461311319356

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Users who downloaded this article also downloaded:Carlo A. Mora#Monge, Gioconda Quesada, Marvin E. González, James Mueller, Rene Mueller,(2010),"Impact of e#procurement on procurement practices and performance", Benchmarking: AnInternational Journal, Vol. 17 Iss 4 pp. 516-538 http://dx.doi.org/10.1108/14635771011060576Bernard Kornfeld, Sami Kara, (2013),"Selection of Lean and Six Sigma projects in industry", InternationalJournal of Lean Six Sigma, Vol. 4 Iss 1 pp. 4-16Khalid S. Soliman, Brian D. Janz, Thomas Puschmann, Rainer Alt, (2005),"Successful use of e#procurement in supply chains", Supply Chain Management: An International Journal, Vol. 10 Iss 2 pp.122-133

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Lean Six Sigma and digitizeprocurement

Bernardo NicolettiMaster in Procurement, Universita di Roma Tor Vergata, Rome, Italy

Abstract

Purpose – The purpose of this paper is to demonstrate how the lean Six Sigma method can beapplied to procurement, processes where there is an extensive use of information technology andcommunication (ICT) systems. The paper defines a method to streamline, digitize and reduce waste inprocurement processes by using the “lean Six Sigma and digitize” methodology.

Design/methodology/approach – A framework was developed and applied to the procurementprocesses, based on the analysis of best practices and on several implementations.

Findings – It was found that the digitization of a procurement process which is not streamlined cangenerate problems. A process must be mapped to highlight waste and low quality. Only when the newprocess is improved, taking into account also that it will be possible to use ICT supports, can it bedigitized. The new process will digitize only value-added activities recognized by the users and by theorganization.

Practical implications – The paper should be of interest to the academic world, as well as tomanagement working in all types of organizations.

Originality/value – Within the field of lean Six Sigma and information and telecommunicationtechnology, there has been a continuous debate as to whether both approaches are complementary orcontradictory. This paper fulfils an identified need to study the interactions between a modern exampleof information technology and its role within procurement, making a valid contribution within this fieldof research.

Keywords Lean Six Sigma, Procurement, Service, Digitization, Information systems,Information and communication systems

Paper type Technical paper

IntroductionProcurement is the acquisition of goods or services. It is important that thegoods/services are appropriate and that they are procured at the best possible cost tomeet the needs of the purchaser in terms of quality and quantity, time, and location.Purchasing is any activity for which the organization receives an invoice from an outsideparty while procurement includes all activities in order to get the product from thevendor to its final destination (Van Weele, 2009).

During the recent economic crisis the organizations learned the importance of beingLean. In this way, they can be to improve the value to the customers and reduce costs.The procurement departments must take into account this imperative. It is essentialfor procurement to become as Lean as possible by improving its processes andright-procurement. On this respect, there are more and more opportunities connected notonly with outsourcing, but also with business process outsourcing (BPO) and morerecently with knowledge process outsourcing (KPO).

Lean thinking is recognized as one of the most effective methodologies toimprove business processes. It aims to satisfy customers by increasing the valueof the products/services for them and to reduce simultaneously the lead times

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/2040-4166.htm

International Journal of Lean SixSigmaVol. 4 No. 2, 2013pp. 184-203q Emerald Group Publishing Limited2040-4166DOI 10.1108/20401461311319356

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(Womack and Jones, 1996; Atkinson, 2004). These objectives are achieved through theuse of methods and tools, which allow eliminating waste, reduce process time andsimplify operations (Womack et al., 1990).

Six Sigma is a data-driven process improvement methodology used to achievestable and predictable process results, reducing process variation and defects. Snee(2004) defined it as: “a business strategy that seeks to identify and eliminate causesof errors or defects or failures in business processes by focusing on outputs thatare critical to customers”. While both Lean and Six Sigma have been used formany years, they were not integrated until the late 1990s and early 2000s (Snee, 2010).Today, Lean Six Sigma is recognized as: “a business strategy and methodology thatincreases process performance”. Lean Six Sigma combines the best of two distinctmethodologies:

(1) Six Sigma, which helps in reducing the number of defects and the variation ofthe outputs.

(2) Lean thinking which helps in reducing the cycle and lead times.

A certain number of organizations, such as Motorola, GE, and Toyota have achievedexcellent results by the use of these methodologies, in fields such as production,maintenance, marketing and finance. Various consultants and thought leaders havedeveloped a specific adaptation of the method to help mainly manufacturing in theirclient organizations to become leaner.

This paper presents a method called Lean procurement. It is based on theapplication of the tools of the Six Sigma method combined with the Lean thinkingand Six Sigma principles while also taking into account of the digitizationopportunities.

Both in the literature and in the practice, often the main problem is the excessiveseparation between improvements of manual activities and automated activities, betweenoptimization and digitization, between “factory” and information and telecommunicationsystems (ICT). This problem is even more evident if we focus on service organizations orthe service sectors in any organization. In these situations, processes are more and moreessentially driven by ICT (Piercy and Rich, 2008).

The study (Bortolotti et al., 2009) tackled with the main question: “how can oneintroduce Lean principles in the pure-service context, where the typical productionelements are missing and information management prevails?” The lack of an effectiveresponse to this question generates a serious problem encountered at managerial level: aproblem of sequence. Because it is not clear when streamline and when automate theprocesses, one could automate errors and waste. The papers presented a methodologyfor leaning first and then automate.

This paper aims to apply to procurement the methodology indicated as Leanand digitize (Nicoletti, 2012). This is a method to simultaneously streamline andautomate processes and their management. Out of a long experience in different typesof organizations and several research works in procurement and procurement, amethodology was presented for process reengineering using Lean Six Sigma principlesand tools and digitization techniques (Nicoletti, 2012). The methodology shows clearlythe sequence of activities that should be done to integrate the methods of digitization inthe activities of any organization. This paper applies the methodology to streamlining

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and digitizing the procurement processes, in order to obtain competitive advantages.In order to avoid the digitization of errors and waste, the research suggests to:

. map the manual and automated activities;

. highlight, delete or, at least, minimizes every non value added activity for thefinal customer;

. redesign the new process to make it Lean taking into account also theopportunity offered by digitization; and at the same time

. automate it.

The digitization is like a magnifying glass that reveals, accelerates, and exalts theimprovements, such as the errors. The digitization of an incorrect process drives to makeerrors faster. The digitization of a streamlined process accelerates the achievement of theobjectives, and amplifies the competitive advantages obtainable with the improvedprocess.

Literature reviewThe quality in the service context is a strategic element because it allows gainingcompetitive advantages, reduces costs and increases market share and profits(Gronroos, 1982; Thompson et al., 1985; Zeithaml et al., 1988; Parasuraman, 1997).Service processes are fundamentally different than manufacturing processes. Some ofthe factors that differentiate services from manufacturing are: the active participationof the customer into the delivery process, the place of delivery and the place of use ofthe service are often the same, the service intangibility and the impossibility of storingthe services (Fitzsimmons and Fitzsimmons, 1994). It is also proved that serviceprocesses have not been as efficient as manufacturing processes (Lovelock andGummesson, 2004). This implies that there is the opportunity to transfer in the world ofservices the practices commonly adopted in the manufacturing context (Smith andWaterman, 1981; Antony et al., 2005; Snee, 2004), taking into account the substantialdifferences described above.

Back in the 1940’s, Eiji Toyoda and Taiichi Ohni defined the Toyota productionsystem (TPS), from which Lean thinking was created. The “Lean thinking” term wascoined by James Womack, Daniel Jones and Daniel Roos in The Machine that Changedthe World (Womack et al., 1990). The main objective of Lean thinking is the eliminationof the so-called three M’s: Muda (waste), Mura (unevenness) and Muri (overburden).They are defined as an activity which does not provide any added value for the customer(Hayes and Wheelwright, 1979). Relative to Muda, there are seven different sourcesof waste: overproduction, defects, transportation, waiting, inventory, motion, andprocessing. Lean thinking is defined as a systematic waste removal from every valuestream part, by a team effort. “Value stream” can be defined as the whole set of activitieswhich compose the process (Womack and Jones, 1996). All efforts should be done in sucha way that each activity adds value to the customer. Lean thinking implementationprovides several benefits, such as: cost reduction, productivity increase, qualityimprovement, lead time reduction, supplies reduction, flexibility, and customersatisfaction improvement. Womack et al. set five main principles (Womack et al., 1990),in order to achieve a Lean business model: value, value stream, flow, pull, andperfection. Lean thinking has been applied in the service context through recent

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“Lean service” studies. The most important are: Hines and Rich (1997), Abdi et al. (2006)and Sarkar (2007). However, these studies focused on process streamlining of servicesassociated with products (for instance Taco Bell, Tesco, etc.), services in support ofproduction (administration of a manufacturing organization) or services in healthcare(De Mast et al., 2006) or financial services (De Koning et al., 2008; Uprety, 2009;Lokkerbol et al., 2012). None of these studies focused on the application of Leanprinciples to the procurement processes.

Sugimori et al. argued that the use of the information and communication systems forproduction planning introduces unnecessary costs, overproduction, and uncertainty(Sugimori et al., 1977). This theory contrasted with the trends of the 1980s and 1990s,when the interest on MRP and ERP systems, numerical control machines and productionlines fully-automated was huge. The highly automated organizations were lessvulnerable to the typical problems of manual work. However, there were examples ofover-investment in digitization that have worsened the flexibility and the ability torespond to the demand changes (for example General Motors in the 1980s; CIM) (Bowenand Youngdahl, 1998). Recently, some authors have underlined how systems in general(Gibbons et al., 2012) or some specific automation technologies (such as RFID) can helpleaning processes (Powell and Skjelstad, 2012).

Although e-procurement has substantially streamlined, and integrated theprocurement and coordination processes for indirect goods, many organizations operatemultiple e-procurement solutions. For integrated procurement solutions, this paperrecognizes the need for an overall procurement strategy and organization, an alignment ofvarious e-procurement solutions along the procurement process and the need forintegrated system architectures (Secchi, 2012). Organizations have also to realize that nostandardized e-procurement solutions exist and that important success factors are“non-technical” in nature (Puschmann and Alt, 2005; Wilson and Roy, 2009). Lean thinkingfocuses on flexible and “intelligent” automation and “low cost” technologies. MRP isreplaced by just-in-time techniques such as Kanban and Heijunka boxes, much morecontrollable and simpler. The numerical control machines and production linesfully-automated are replaced by cells with less automation. However, it is not clear how theprinciples, techniques, tools, and approaches of Lean thinking can be applied in a servicecontext internal to the organization, like procurement, where there is an intensive use ofinformation and communication technologies to process the huge quantity of informationand documentation, representing the workflow of the procurement process (Uday andChon, 2004). On the other side, the use only of automation to improve performance remainsuncertain (Cheng et al., 2004).

The Lean Six Sigma and digitize methodologyThe Lean Six Sigma and digitize methodology is based on the application of severalmacro-phases: preparatory, define and measure, analyse and process design,architecture design, develop, test and deploy and verify (Nicoletti, 2012) (Figure 1).It is essential to apply this methodology and its tools (Nicoletti, 2012) in strongpartnership between all the departments of the organization involved, quality andsupport organizations (such as ICT, finance or operations). Stakeholders need to align insetting up and staffing the improvement project team. Process and ICT specialists canassist, and help lead these projects at a client organization. Perhaps more importantly,the organizations must treat the initial Lean and digitize project as the beginning of an

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iterative cycle that generates continuous improvement and lead to a change in theculture of the organizations towards Lean thinking (Womack and Jones, 2003). Processimprovement should not be triggered by a problem or challenge, but rather becomeingrained in the organizational culture.

This procurement methodology empowers multiple levels of the organization tohelp attain its goals (such as project-based procurement). It can yield significantresults. Based on several case studies, on average the benefits would be (Nicoletti,2012):

. cost reduction between 20 and 40 percent;

. speedier responses to the need of the business;

. more flexibility;

. a wider range and pool of talents from outsourcing organizations; and

. reduction of risks with the vendors.

In the next few paragraphs we shall discuss the way to apply this methodology to theprocurement processes.

The Lean procurementThe following pages detail the steps in a successful Lean procurement initiative. Theyunderline the critical success factors for such an initiative. The latter aspects areextremely important in any Lean Six Sigma initiative (Laureani and Antony, 2012).

Figure 1.The Lean anddigitize method

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The words Lean procurement are used for short in the following pages to indicate theLean Six Sigma and digitization initiative.

PrepareThe Lean procurement initiative should start with a preparatory phase. Giving fordefined the context, vision and strategy of the organization, the main activity in thepreparatory phase is the prioritization on which process to launch the initiative andthe selection of a valid project leader. In the case of procurement, possible processcandidates for improvement could be the request for information or quotation, theprocure to pay, the logistics and so on. In kicking off the project, it is important tocommunicate the launch of the initiative to the entire organization (and in some casesalso to the vendors and the customers).

At the end of this preparation, it would be important to set up a Leanprocurement committee. It is necessary to submit the proposal of the process tothis committee for its approval. In the Lean Six Sigma jargon, this activity is calledtollgate zero.

Define and measureThe Lean Six Sigma and digitize method really starts with the define and measuremacro-phase. The entire organization should support the Lean procurement projectwith a team effort. There should be full time or part time representatives from all thedepartments involved. First, the project team must record the voice of the customer(VOC) to focus on what it is really important for the success of the initiative. It isnecessary to detail the user requirements to understand what are the metrics thatshould be measured, monitored and improved (the CTQ or critical to quality).Generally the most important CTQs are cycle times and service levels. Following thatphase, the project team has to map the As-Is process. The process mapping involvesboth the manual and the automated flows. Specifically, the project team has to observethe sequence of manual operations and the layout, to understand how the physical flowis regulated, and the applications, systems, interfaces and digitized flow are regulated.Mapped the process, the project team measures the metrics and identify the criticalpoints related to the As-Is process.

The analysis of real cases revealed a point of weakness: the method adopted for themeasurement, the interview, caused loss of time and poor accuracy of the datagathering. The analysis of other cases was rather an example of best practice: processesare measured extracting data from the data warehouse (when available). This providesa fast and accurate measurement. This example shows how the involvement of theinformation and communication technology in the Lean procurement projects wouldaccelerate and optimize the measurement phase.

The first phase of the method would be the define, the main steps in thisstep are:

(1) define in detail the process and the problems which we want to improve;

(2) define the macro-objectives for the initiative;

(3) set up the team which will go through the application of the method;

(4) assess current environment (vendors, organization, logistics, processes);

(5) define product/service requirements (current and expected);

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(6) identify opportunities and quantify potential benefits; and

(7) build implementation plans.

The deliverables of this phase should be included in a document labelled projectcharter with:

. The assignment of the project leader, the main members of the project team andthe belts (or the consultants should the organization not have belts) to support.

. Current process documentation, from an organization, physical and informationsystems point of view (As-Is). In the latter case, it is important to define also theinterfaces with the other processes in the organization.

. The strengths, weaknesses, opportunities and threats (Swot), stakeholder andrisk analysis.

. The stakeholder requirements.

. The project plan through the development phase.

. A rough and initial cost benefit analysis.

The project charter should be submitted to the Lean procurement committee forapproval. In Lean Six Sigma and digitize jargon, this step is called tollgate one. The basicpremise of this step is to lay the groundwork for a successful initiative. Before beginningthe following measure phase, the team should have:

. defined the key process or problem to be addressed;

. agreed upon the goals of the initiative;

. identified the key stakeholders involved in the project; and

. gained consensus and approval to move forward with the project.

The key objectives of the following phase measure phase include the following:

(1) the selection of the CTQ measures and the key process indicators (KPI);

(2) an accurate measurement method, based on stakeholder-approved definitions;

(3) sufficient information to validate the need and quantify the potential benefits;

(4) specific objectives to be met by the remainder of the initiative; and

(5) approval (or agreement not to move forward) with the remainder of the project.

Many initiatives falter or even fail in the measure phase because it is very easy to get boggeddown in data collection activities. Often, information is not readily available, or is “hidden”across different groups, teams and stakeholders. In cases where no previous data has beencollected, it may take weeks, or even months for a new measurement system to startproducing meaningful information. Further, in cases where there is a great deal of data,simply putting the means in place to collect information can be an entire project in itself.

A few things to keep in mind when conducting the measure phase of a Leanprocurement initiative:

. One should not ignore the standard measures, such as the number of vendors(stratified by function/service), service quality, time to pay, number oftransactions, utilization of products/services, and so on.

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. Be cognizant of spin-off projects, such as time tracking for services, or assetmanagement for software and hardware products. Such projects are very helpfulin squeezing waste out of the budget, but the absence of these tools should not stalla Lean procurement initiative. Often, simply reducing unnecessary vendors orconsolidating them, tracking and enforcing basic performance metrics canprovide an large benefit.

. In cases where the implementation of a new measurement method cannot beavoided, be sure to treat its implementation as a formal project. Done properly,this can be a big win by itself.

. The Lean procurement committee and key stakeholders should be consulted often.The team member tends to be burrowing deep into the details, so high-levelreviews will help keep the big picture in focus.

. Data does not need to come from an information and communication technologysystem. Even subjective data, such as satisfaction surveys and focus groupdiscussions can yield actionable information. At the very least, they will providea good sanity check for other data one collects.

. It is unfortunate but it should be accepted that an unsuccessful project becancelled. Although projects are typically kicked-off as a response to a seeminglyobvious need, sometimes the data will say otherwise. Halting an expensiveinitiative for lack of clear benefits is as good as running a successful project.

At the end of the measure phase, there should be a clear understanding of the problemat hand, the future target of the relevant CTQs and KPIs, and a precise method ofmeasuring the progress towards the goal.

Analyse and process designOnce completed the define and measure phase, the project team has to find everywaste and non-quality present in the As-Is process and redesign the sequence ofactivities eliminating all sources of waste and variability. The process should beredesigned through: the elimination of non value added and not necessary activities;the redesign of operations that produce waiting times, unproductiveness,transportation, queues, stocks; the outsourcing or centralization of activities withlow value added but necessary; the simplification, standardization, optimization, andautomation of some manual activities; and the reduction of excessive, obsolete and notcontrolled automation.

The most important prerequisite to kicking off the analyse and process designmacro-phase is to have clearly demonstrated meaningful potential benefits. It isimportant also to understand very specifically how one will measure the effectivenessof any solution. However, there are scenarios where the project team might want toconsider moving into the analyse and process design macro-phase without this:

. there was not enough time or resource to collect conclusive information and dataon the current procurement program;

. a key stakeholder (leadership, board member or similar) insists on movingforward for qualitative strategic reasons; and

. the measure phase proved inconclusive, and only by analysing and even pilotingsolutions can one understands the true cost benefit analysis.

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If any of these scenarios apply, there may still be good reason to begin the analyse andprocess design macro-phase. This should be done with the full understanding andapproval of the Lean procurement committee. Most importantly, stakeholders shouldaccept the very real possibility that the result of the analyse phase may be to do little ornothing.

The key objectives of the analyse phase include the following:

(1) The solution. During the analyse phase, the team should have looked at varioussolutions that may be part of any Lean procurement initiative, such as: reducingthe number of vendors, implementing SLA tracking systems, renegotiationprograms, multi-procurement, process improvements, integration of thedifferent flows and e-procurement systems for vendor and procurementmanagement. After reviewing the costs/timeline/benefits of these options, afuture state solution should be identified.

(2) Multi-generational project plan. While very simple solutions may only need one“generation”, most solutions will need to be implemented in phases over time tomaximize benefit while minimizing disruption to the business, additional costs, andother forms of stakeholder fallout. A rule of thumb is that each phase or generationin which the project might be divided should not last longer than six months.

(3) Pilot preparation. A carefully chosen target area (perhaps a single business unit,a single element of the plan, and so on) should be chosen. The goal of the pilot(conducted in a later macro-phase) is to prove the effectiveness of the solution,build support for the greater program, and to refine the plan for the overallprogram. Ideally, steps can be taken during the analyse phase to prepare thepilot group/process for a quick ramp-up given approval.

(4) Updated stakeholder review and management plan. The end of the analysephase is perhaps the most critical time to have a detailed communication plan.Many projects do not make it to this point, and so people may not be trulyengaged or aware of what’s happening. Once this tollgate is passed, real changewill begin to happen. It is imperative to have the people who will make thathappen fully on board.

The analyse phase takes a step back out of the detail. It requires looking again at thebroader program. In addition to the specific solution, special attention must be paid tothe implementation plan. In procurement, there are often long-standing and deeprelationships between key people inside the organization and some of the vendors.These relationships must be identified, classified, and ideally leveraged for the successof the program. In some cases, mitigation plans may be necessary to avoid unhappystakeholders or vendors jeopardizing the success of the program.

A few things to keep in mind when conducting the analyse phase of a Leanprocurement initiative are:

. Avoid the pressure to deliver. In an ideal world (at least from the shareholder’sperspective), everyone in a business is focused solely on the growth and successof the business. In real life, people are also focused on the growth and success oftheir careers. Therefore, one may be under pressure, both personally and fromthe management, to get something done. It is very hard to demonstrate the value

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of not doing something. It will be much harder to demonstrate the value ofsomething that should not have been done.

. Enable to have frequent and regular wins. This holds true with any project. Thebest way to keep momentum, funding and support for an initiative is to showresults. Further, solutions that have several benefit-yielding milestones are easierto manage, and the risk of failure is significantly reduced. Even if an element ofthe plan consists of implementing complicated new systems, it is worthwhile totry to include changes and improvements that can be completed in the near term.

. Be very wary of visionaries. Oftentimes, some stakeholders or members of theproject team may push one towards certain solutions because of a vision abouthow things should be. Unless those visions align with what has been concludedduring the previous phases, avoid diplomatically these ideas at all costs. Thisfactor has contributed to high-profile project failures examined during thepreparation of this paper.

. Know the full stakeholder impact of the decisions taken. Let’s say one of thedecisions made is to reduce the number of third-party logistics providers by50 percent. There are clear winners and losers both inside and outside theorganization – the vendors being downsized or eliminated, and the procurementleaders who champion them, may push back very strongly. Those vendorsgetting a bump should be very happy with the plan. Remember to address both.If one is expending effort to manage the losing stakeholders or vendors, it isworthwhile to reap some benefits for the winners.

As with any framework, it is important to keep the big picture in sight. Detractors statethat structured methods merely add an inordinate amount of bureaucracy and work toa process that should be common sense. And in some ways, they are correct. It is easyto look at a process or program from the outside and have a good idea about how itshould be run and managed. However, as a project or program manager working in thedetail, with pressure coming from all over the organization, it is very easy to lose sightof the big picture. The key is to use the frameworks as the means to remain on the rightpath – not as a series of ends which must be satisfied.

Architecture designThe To-Be process describes the sequence of activities that will form the futuredelivery process. These activities may be part of the manual flow or automation flow.The tasks of the architecture design macro-phase are to plan in minute detail thefunctional and technical characteristics of each activity, component and service thatare part of the two flows (manual and automatic), to design any interface betweenactivities, and to regulate the process and information flows to make them continuousand connected with the final customer. This is achieved by defining the organizational,physical and automation architecture.

It is important in this macro-phase to focus on value. For every activity that isperformed in the procurement process, one should ask the question: is the (external andinternal) customer prepared to pay for this activity? Then analysing the value streammapping, eliminate wastes. In analogy to the Lean manufacturing, wastes areover-documentation, unnecessary work, rework, motion, excess transportation, excessinventory, over-processing, and too long waiting times.

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It is particularly important to concentrate on integration (within the organization andwith the vendors). There are several ways to integrate. Figure 2, shows some of them.

The main activities in this phase are:

(1) Look for purchasing, logistics and warehousing activities that can beeliminated.

(2) Build effective collaborative vendor relationships: e-procurement simplifies andmakes digital most of the interactions with the vendors.

(3) Increase process and vendor relationship visibility.

(4) Measure and improve vendor performance using the CTQs defined in themeasure phase.

(5) Improve automation, but do not over-automate (integrate procurement softwarewith ERP, transportation and warehouse software).

(6) Reduce administrative and documentation tasks.

(7) Create flow for products and data.

(8) Eliminate bottlenecks in administration:. approvals;. requests for proposal; and. status inquiries.

(9) Empower users to perform purchases with pre-set spending limits.

(10) Establish pull from the customer.

(11) Postpone purchases until they are actually needed.

(12) Limit purchases to the needed quantity.

(13) Improve continuously investing in systems for spend visibility.

(14) Involve vendors in the continuous improvement process.

(15) Approval (or agreement not to move forward) to implement the solution.

Figure 2.The ways tobetter integrate

Simplify and standardizeAct on procedures and

norms

Modify the structural andwork organization

Lean Procurement Plan and control better

Use the information

Act on the relationshipspushing on collaboration

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Combining this approach with digitization bring substantial value (Beaumont, 2009).For instance, the adoption of web-based tools in the procurement process allowsorganizations to either reduce transaction costs or improve internal procurementprocess efficiency, or even increase collaboration with vendors (Bartezzaghi andRonchi, 2003; Boeing, 1998; Karlsson and Ahlstrom, 1997).

Develop, test and deployDuring the build, test and deploy macro-phase, the To-Be process is implemented and tested:

. the new physical structure, new software, and new interfaces are developed,following the functional and technical specifications designed in the previousmacro-phase of architecture design;

. every part is then tested individually to verify the correctness of the development;

. one this is verified, a pilot is launched; the process is implemented and simulatedon a small scale, in order to verify the real functions, and in case ofmalfunctioning, appropriate changes are made; and

. verified the correctness of the new process, it can be introduced within thedelivery system and fully implemented.

The develop, test and deploy phase is often refer to as build phase, because the primarygoal is to execute the pilot defined in the analyse and process design phase. Whilevirtually every activity undertaken should ultimately reside in refined, on-goingprocesses, there are often several one-off’s that fall outside of future procurementprocesses. For example, vendor consolidation is (ideally) a one-off or as-needed activity,while managing and maintaining the right vendor mix and consolidate shipments is anon-going process. The other caveat to remember is that unlike many internal processes,it may be very tricky to fully ring-fence a Lean procurement pilot. For example, if partof the solution involves introducing a new project-based outsourcing process, ormoving from single- to multi-source models, the vendors may react as if the entireorganization has committed to the shift before it actually has.

The key objectives of the develop, test and deploy or build macro-phase include thefollowing:

(1) Vendor preparation. The vendors, involved in the pilot run of the Leanprocurement initiative, will need to be ready for upcoming changes. In caseswhere a process is significantly changing, it might be necessary to use incentivesto help ensure their compliance. Incentives can be direct (for instance promisingmore business, penalties, bonus, or other means) or indirect (for instance makingit clear that new projects and services will only be procured via the new process).

(2) Contractual work. Depending on the nature of the pilot, one may need to eitherrenegotiate certain aspects of existing contracts and/or negotiate new contractswith vendors that one is introducing. In many cases, however, it may make senseto work off informal agreements throughout the design and verify macro-phasesas it is likely that additional process and strategy changes might be needed.

(3) Process and technology. The new processes must be laid out and communicatedthoroughly to the internal teams. Additionally, now it is time to install andconfigure any technology to be used in supporting these new processes.

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(4) Stakeholder prep and close monitoring. After the analysis in the analyse phase,it is time to get ready and ramp up. In the same way that the vendors need to beinformed and bought into the new processes, so must the internal teams. Theproject team should dedicate particular attention to the communication plan.Frequent and regular updates and open forum meetings should be scheduledthroughout the late develop, test and deploy and verify stages.

(5) Support structure. Any tools or people that will be used in supporting the Leanprocurement initiative should be put in place. These can include instructionalweb sites, a help desk, and/or procurement support staff. It is important to usethe support team both as a facilitator as well as a measurer of the challengesand successes of the initiative.

(6) Pilot kick off. Once the stage has been set, the processes laid out, the pilotin place (where applicable), and the vendors and internal stakeholders are ready,it is time to begin using the new processes and enter into the verify macro-phase.

A few things to keep in mind when conducting the develop, test and deploy phase of aLean procurement initiative:

. The vendors are not machines. Do not lose sight of the fact that strong vendorrelationships can still trump any process rigor one puts in place. A competitivebidding process, for example, can reduce costs dramatically, but if the vendorsbecome disenfranchised, quality and timeliness will be impacted.

. Stay flexible. It may not be feasible to change some or many of the processes andcontractual agreements that are currently in place, at least not in the short term.While one does not want to treat these as barriers to success (or an excuse forfailure), one may well need to work around them. If any of these incumbentfactors seriously impact the success of the initiative, they should be thoroughlyaddressed with stakeholders so that they can either remove the barriers, or resetexpectations accordingly.

. Empower the operational team. Possibly the single biggest source of failure in bigprocurement initiatives is the mismanagement of the operational teams. Oncethe procurement groundwork has been laid, the initiative and project leadersresponsible for delivering those services become both the biggest weapon andpotential failure points. While procurement teams can manage and monitor overallspend and service levels, the buyers and vendor managers can closely monitor andmanage these services. They can detect service erosion far earlier than ICT orprocurement leaders, and if properly empowered, they can also resolve these issuesbefore they snowball. Conversely, disenfranchised managers may use newprocurement processes as an excuse for failure, undermining the entire initiative.

At the end of the develop, test and deploy macro-phase, one should have the processesand in-scope teams ready for going live. The goal should be to have strong buy-in fromsenior management, the operational teams, and the vendors. The solution that it isplanned to go live may have changed somewhat during these previous phases due toincumbent processes and contracts, or because concessions needed to be made in orderfor all parties to work together successfully. Provided that the ultimate solution set onehas a strong projected ROI, one can move on to the verify macro-phase.

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VerifyThe last macro-phase of the Lean procurement method ends with the verify phase. Theprocess must be constantly monitored measuring the reference CTQs. A process notmonitored could degrade and cause huge losses due to a possible customer satisfactiondecrease. At the start of the verify phase, when the process becomes effective, anychanges after installation and the plan for decommissioning of parallel processes nolonger active must be defined and implemented.

In a perfect world, the pilot delivered better than expected results, and the projectteam would be fully confident in flipping the switch, and immediately rolling out thenew procurement processes and systems throughout the business. In reality, the act ofverify is an on-going, iterative process of continual improvement, tweaking, andexpansion of the program.

The likely best case scenario is that, as a result of the pilot, there would be the startof actual cost savings, or a clear path towards savings. There is often an unwindingperiod whilst existing contracts are closed out, or service providers switched, and theseexpected “investments” will start paying for themselves in the near term. In thesecases, the verify macro-phase is used to validate the measurement system in place, todevelop a full-term rollout plan, and to execute.

In a more middle-of-the-road scenario, the pilot provides the foundations for success.Certain aspects are either more difficult or costlier than anticipated. Possibly the mostcommon issue faced is finding that a procurement strategy, that looked great on paper,did not work out as expected once the actual users in the organizations started usingthe resultant processes. This generally happens when a far stronger emphasis is givento renegotiations and rate reductions than is given to supporting and preparing theusers (generally ICT and operations managers) to be successful. While this is by nomeans a show-stopper, it should certainly be addressed in subsequent rollout plansthrough training, stakeholder management, and even compromises.

In the unfortunate cases where the expected benefits are not delivered, it may benecessary to rethink the fundamental aspects of the Lean procurement strategyimplemented. In addition to the lack of user readiness, the issues uncovered during apilot could include:

. Supplier capability challenges. Reducing the number of vendors and logisticsoperators can save a great deal of time, efforts, documentation and cost, but itmay create gaps across the product and service set.

. Product or service failure. Switching or consolidating vendors run the inherentrisk that a process or product in the organization might fail.

. Slow adoption or no adoption. Unless there is a clear top management-mandate,there needs to be something in it for the users by the new process. If there are noperceived benefits out of the initiative, one may get little more than polite lip service.

Even in these cases, it is critical to quickly identify and address the misses before thestakeholders become disillusioned. Almost by definition, any procurementorganization can become leaner and more effective. Yet the steps necessary in each casecan be very different. It is necessary to remind frequently to the stakeholders that a pilot isintended to uncover these very challenges, and that it has been decidedly successful indoing so. The pilot should also uncover short-term opportunities that can be used tomaintain momentum for the program whilst the larger strategic component is reviewed.

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Unlike the other stages, there is hardly a discrete end to the verify stage. Theprocurement leader should have time-bound targets based on savings, efficiency, and/orsimplification. However, a commitment to continual review and improvement shouldnot only keep the organization leaner and leaner, it will deny the future successor anopportunity to look like a hero.

A real caseWe used the method in several cases. One of the most interesting applications wasdone in the Italian-based divisional headquarter of a large multinational company,active in the construction of large machinery (Nicoletti, 2006).

The objective was to create an effective company sourcing platform, includingprocesses, procedures, tools, datasets, and metrics, also enabling sourcing operationsto leverage the global organization of the group to which the company belonged.

The team worked through:. Several workout events (called WO!). The first step was to permorm a thorough

Sipoc analysis.. Weekly meetings to review the Kaizen plan, with all the departments involved,

e.g. with the accounts payable team.. Past due analysis, root causes, ownership and issues solving. There were

meetings held with manufacturing and accounts payable to agree on a procedureand the automation.

. Interfaces with the main vendors to do a two way match vs receiving.

In terms of processes, the team:. Adopted a policy of no purchase order no pay (“NO PO NO PAY”) to enforce the

use of the sourcing department. The policy is applied also in the field where thecompany is doing installation and maintenance work at customer sites.

. Developed a payment terms rationalization and definition of golden rules fordown payments.

. Used feedbacks received from vendors in order to improve the poor forecastingaccuracy.

The project team set up:. Vendor management centralization: a single company vendor repository.. A company unique repository to store internal regulations and vendor

documentation (rebates, frame agreements, meeting minutes, etc.).. A search appliance from a major vendor to ease the search of the documentation.

The team designed and implemented tools to minimize manual work, such as:. Tests to verify the ERP purchase order capability to manage also the letters of

intent in order to fully standardize and automate the process.. A supplier portal, to connect the vendors to the company digital platform. Sharing

accurate and timely information is key for B2B success and relationships.. Lead time management for full alignment among the company systems.

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. eSQM – electronic supplier qualification management.

. eRequirements to get a deeper integration with the engineering department.

. eRFQ management both in the inquiry to order and in the order to remittanceprocesses.

. A new corporate eAuction tool.

. eMSD – material ship direct.

. TPS – trade payables system. Good opportunity to get savings.

. Indirect goods saving purchasing tracking system. To track and report savingsfor indirect purchases.

The team supported also a better governance of the sourcing processes:. several reports were set up to support a spend visibility;. budget match, adopting a common paperless solution across the entire company

(no more manual spreadsheets); and. audit sourcing procedures and applications.

Lean procurement in this case supported the organization in achieving its goals(such as project-based procurement). It has produced significant results. Benefits were(for confidentiality we may not indicate the actual values):

. faster and leaner quoting process, increasing competitiveness;

. substantial reductions in costs thanks to synergy;

. more flexibility with quick answers to the needs of the organization;

. a wider range and pool of vendors;

. sourcing governance improvement; and

. risk reduction with supplies, by introducing a continuous Fmea analysis.

Other applications are documented in a book currently in press (Nicoletti, 2013).

Further researchFurther research is going on: the main research limitations of this study can becategorized in the following way.

ScopeThe study used a broad selection of large enterprises. A possible future research fieldshould be the adaptation of the framework in the context of small and mediumenterprises (SME’s). In order to address this limitation, the framework should beapplied to more case studies in order to observe and register further examples in thedomain of SME’s.

ToolsFurther work is necessary also on the support of Lean Six Sigma and ICT to theprocurement processes. Until now, most of the tools and systems are built to supportfunctions rather than processes. It is necessary to analyse in more details the connectionsbetween Lean Six Sigma and ICT. There is the need of more integrated tools.

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ProcurementIn the specifics of procurement, a better conceptual model of e-procurement isnecessary, especially to take into account the extended Lean enterprise.

ConclusionsThe approach presented is an example of a process improvement method. Lean SixSigma and digitization applied in the past mainly to the manufacturing. This paperapplies the method to the procurement processes. Two propositions are the result of thisresearch. They could be the starting point for a subsequent study on different types oforganizations:

P1. Unlike the manufacturing context, where Lean thinking does not essentiallyrequire a reduction of digitization, in procurement digitization it is essentialfor the improvement of the processes.

P2. In the procurement context, digitize a process not streamlined iscounterproductive.

Corollary to P2: in the procurement context, it is convenient to take the sequence ofimplementation that provides first an accurate improvement of the quality of serviceand streamlining of the process by the elimination of any source of waste, while takinginto account the digitization imperative.

The final model responds to the lack in literature of a consistent method that managesand integrates the classical activities of streamlining a procurement process, with theactivities of digitization. In addition to the academic contribution, this study proposes astructured sequencing of the activities in a procurement process improvement initiative.The model provides a logical sequence to the activities of streamlining anddigitizing processes: first streamline, and at the same time, digitize the value addedactivities recognized by the customers. In this way, one can avoid to enter in the processand information systems any waste that could be the cause of delivery process delaysor blocks.

In conclusion, the framework developed provides a logical sequence to reengineerprocurement processes by using the Lean Six Sigma and digitize method. To be moreprecise: it is necessary to Lean the process and at the same time digitize value addedactivities.

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About the authorBernardo Nicoletti has worked for GE and AIG, with assignments in Italy, UK, USA andArgentina. Currently he is Professor of ICT Procurement at the Master in Procurement of theUniversity of Tor Vergata, Rome, Italy and provides consultancy and coaching on ICT Strategy,Organization, Procurement, Security and Compliance. He is the author of 20 books onManagement, published in the UK and in Italy and frequently is a speaker in internationalconferences. Bernardo Nicoletti can be contacted at: info@bernardonicoletti.com

To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details: www.emeraldinsight.com/reprints

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